LP Acquisition Co. v. Tyson, 85CV73341DT.
| Decision Date | 07 August 1985 |
| Docket Number | No. 85CV73341DT.,85CV73341DT. |
| Parties | L.P. ACQUISITION COMPANY and L.P. Media, Inc., Plaintiffs, v. Carl L. TYSON, Acting Director of the Corporation and Securities Bureau of the Department of Commerce of the State of Michigan, et al., Defendants. |
| Court | U.S. District Court — Western District of Michigan |
Theodore Souris, Detroit, Mich., for plaintiffs.
William M. Saxton, Detroit, Mich., Joe D. Sutton, Office of Mich. Atty. Gen., Lansing, Mich., for defendants.
(FINDINGS OF FACT—CONCLUSIONS OF LAW)
Plaintiffs, L.P. Acquisition Company and L.P. Media, Inc. (LP or plaintiffs) filed a three-count complaint against Carl Tyson, Acting Director of the Securities & Exchange Bureau; Doug Ross, Director of the Michigan Department of Commerce; Frank Kelley, Michigan Attorney General; and The Evening News Association (ENA), seeking declaratory relief pursuant to 28 U.S.C. § 2201. Jurisdiction is based primarily upon 28 U.S.C. § 1331(a).
L.P. Acquisition is a wholly-owned subsidiary of L.P. Media. Both corporations were formed on July 26, 1985 for the purpose of acquiring ENA. The principals behind LP are A. Jerrold Perenchio and Norman Lear, self-described "entertainment industry executives." The ENA is a closely held corporation; i.e., its shares are not registered with the Securities and Exchange Commission (SEC) nor listed on any other exchange, a critical fact made clear to the court after study of briefs submitted by the parties. The ENA has approximately 333 shareholders and 45,000 shares outstanding. One-half of the shares and shareholders are located in Michigan; the remainder is found in 24 other states.
On July 28, 1985, LP commenced a cash tender offer of $1,000 per share directed to all shareholders of ENA wherever located. The offer is due to expire on August 23, 1985 and LP anticipates that it will begin to purchase shares on August 17, 1985. LP alleges voluntary compliance with § 14(d) of the Williams Act, 15 U.S.C. § 78n(d) and § 12(g) of the 1934 Securities Exchange Act (1934 Act), 15 U.S.C. § 78l(g). LP also alleges compliance with § 14(e) of the Williams Act, 15 U.S.C. § 78n(e), which plaintiffs contend applies to this (and every other) tender offer.
When making this tender offer, LP deliberately failed to comply with the requirements of the Michigan Take Over Offers Act (Take Over Act), Mich.Comp.Laws Ann. § 451.901 et seq., which LP contends is unconstitutional as applied to their tender offer. LP further contends that any attempt to apply the Michigan Blue Sky Law, Mich.Comp.Laws Ann. § 451.501 et seq. to plaintiffs' tender offer would be likewise unconstitutional. In this action, LP seeks preliminary and permanent injunctive relief enjoining defendants from attempting to apply the procedural and enforcement provisions of these Michigan acts to LP's tender offer. The state defendants have indicated that although they are prepared to enforce the Michigan acts as to LP's offer, they will await the decision of this court. LP represents that ENA will surely seek to enforce the Michigan acts. This matter is presently before the court on plaintiffs' motion for a preliminary injunction.
The crucial issue here is whether plaintiffs can demonstrate a likelihood of success on the merits. LP must show the likely existence of a constitutional violation causally related to the threatened action sought to be enjoined. Wilson v. Thompson, 593 F.2d 1375, 1384-85 (5th Cir.1979).
In alleging that the Michigan statutes are unconstitutional as applied to its tender offer, LP cites the Sixth Circuit opinion in Martin-Marietta Corp. v. Bendix Corp., 690 F.2d 558 (6th Cir.1982) as controlling in this case.1 In that decision, the Sixth Circuit held that the Take Over Act and the Blue Sky Law violated the commerce clause as applied to a tender offer by Martin Marietta for outstanding shares of Bendix Corporation. Those shares were registered with the SEC and fully governed by the Williams Act.
In assessing the precedential value of the Martin-Marietta decision, our initial inquiry is whether LP's tender offer, for unregistered securities, is subject to any provision of the Williams Act, §§ 14(d), (e). There is no dispute that § 14(d) is not applicable to LP's tender offer. The only remaining provision, § 14(e), reads as follows:
It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request or invitation. (Emphasis added.)
LP contends that the language "in connection with any tender offer" renders § 14(e) applicable to its tender offer for ENA shares.
The relevant legislative history of the Williams Act indicates otherwise. Enacted in 1968 to correct a perceived gap in federal securities regulation which left cash tender offers for control blocks of equity securities completely unregulated, the act was the subject of the following discussion directed to Congress:
The bill before you deals with stock acquisitions in three specific contexts — first, the acquisition by means of a cash tender offer of more than 10% of any class of stock, of a publicly held company; second, other acquisitions by any person or group of more than 10% of any class of stock of a publicly held company; and third, the repurchase by a corporation of its own outstanding shares.
and Currency, 90th Cong., 1st Sess. 32-33 (1967) (emphasis added).
Throughout various Congressional proceedings relating to the Williams Act, there appears a reoccurring analogy to the proxy rules (applicable only to registered securities). A prime example is found in this statement contained in the committee reports of both houses:
The cash tender offer is similar to a proxy contest, and the committee could find no reason to continue the present gap in the Federal securities laws which leaves the cash tender offer exempt from disclosure provisions.
S.Rep. No. 550, 90th Cong., 1st Sess. 3 (1967); H.R.Rep. No. 1711, 90th Con., 2d Sess. 3 (1968), U.S.Code Cong. & Admin. News 1968, 2811, 2813.
It is clear from these passages that Congress intended that the Williams Act provisions be applicable to tender offers for registered equity securities. Moreover, a recent extensive review of the act's legislative history by Professor Alfred P. Conrad yields the conclusion that no senator or congressman was conscious of a difference in coverage between § 14(e) and any other subsections of the Williams Act. See Conard, Tender Offer Fraud: The Secret Meaning of Subsection 14(e), 40 Bus.Law 87, 89-93 (Nov. 1984).
15 U.S.C. § 78j(b) (emphasis added).
If Congress had intended to apply § 14(e) tender offers to unregistered securities, it would have used this type of language in that section. Moreover, to interpret § 14(e) broadly would render an absurd result by extending coverage of its provisions to foreign and totally intrastate tender offers, as well as those made for the securities of closely held corporations.2 That Congress would intend for only one subsection of an extensive regulatory scheme to have this cosmic scope defies logic. The court would suggest that Congress' choice of the phrase "any tender offer" was intended to refer to the form tender offers take — whether for cash or securities, for all or a portion of the outstanding shares, and the type of transmittal through which the tender offer is made.
We conclude that the scope of § 14(e) is limited to tender offers for registered equity securities, made by means of interstate commerce, the mails, or national securities exchanges. In so concluding, the court is mindful of the SEC's broad interpretation of § 14(e), which suggests that the provision governs tender offers for non-registered securities. Having failed to glean any legislative intent for such an interpretation, however, we find that the commission was acting beyond its statutory authority. Accordingly, we give no weight to the SEC's interpretation.
As LP's tender offer for ENA's unregistered securities is not governed by the Williams Act, LP's reliance on the Martin-Marietta decision is misplaced. Implicit throughout Judge Kennedy's opinion is that Bendix shares were registered with the SEC, that the Martin-Marietta tender offer was fully subject to the requirements of the Williams Act, and, accordingly, that Bendix...
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